CFA Level I · CFA Level I Exam · Credit Risk
A 5-year corporate bond has a yield of 4.80%. The 5-year government par yield is 3.60% and the 5-year swap rate is 4.00%. The bond's I-spread is closest to:
The I-spread measures the bond's yield over the swap rate of the same maturity. Here 4.80% minus 4.00% gives 0.80%, or 80 basis points. Using the government yield as the benchmark would give 120 basis points, which is the G-spread instead.
- A80 bpsCorrect
- B120 bps
- C140 bps
Explanation
The I-spread is the bond yield minus the interpolated swap rate: 4.80% - 4.00% = 0.80%, or 80 bps. The 120 bps figure is the spread over the government yield (G-spread), which uses the wrong benchmark. The 140 bps figure has no basis in the data.
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